Economics, 3rd Edition

Price

Quantity 

demanded

Quantity 

supplied

€10

50,000

30,000

20

40,000

30,000

30

30,000

30,000

40

20,000

30,000

50

10,000

30,000

a.  Draw the demand and supply curves. What is unusual 

about this supply curve? Why might this be true?

b.  What are the equilibrium price and quantity of tickets?

c. Your team plans to increase total capacity in its 

stadium by 5,000 seats next season. What admission 

price should it charge?

10 

Market research has revealed the following information 

about the market for chocolate bars: Qd

= 1,600 − 300p, 

and the supply schedule is Qs

= 1,400 + 700p. Calculate 

the equilibrium price and quantity in the market for 

chocolate bars.

---

72

4

ELASTICITY AND ITS 

APPLICATIONS

T

he price a firm charges for its products is a vital part of its product positioning – what the product offer-

ing is in relation to competitors. We have seen in Chapter 3 how markets are dynamic and that price 

acts as a signal to both sellers and buyers; when prices change, the signal is altered and producer and 

consumer behaviour changes.

We know from Chapter 3 that the law of demand states that when price rises, demand falls and supply 

rises. What we did not discuss in the chapter was how far demand and supply change in response to 

changes in price – in other words, how sensitive supply and demand is to a change in prices. When study-

ing how some event or policy affects a market, we discuss not only the direction of the effects but their 

magnitude as well. 

Elasticity

 is a measure of how much buyers and sellers respond to changes in market 

conditions and knowledge of this concept allows us to analyse supply and demand with greater precision.

elasticity

 a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants